If you decide to use federal student loan consolidation as a way to help you in affording college, there are numerous payment plans available; in fact, probably more than you will find with any other student consolidation loan, or perhaps any other student loan altogether. Some of the payment plans are available for only one type of federal student loan consolidation, but there are six in total. Here they are:
Standard Repayment: With this plan, you will pay a fixed monthly payment on your student consolidation loan for up to 10 years, with a $50 minimum monthly payment. Depending on the amount that you borrow with the student loan, the repayment term may be less than 10 years. Available for both FFELP and Direct Loan borrowers.
Extended Repayment: This repayment plan is similar to standard repayment, except for that it allows for a loan term of 12 to 30 years, depending on how much you have borrowed. By stretching out your payments over a longer time period, you can reduce the amount of the monthly payment, however, this will increase the total amount of money you repay over the lifetime of the student loan (due to more accumulation of interest). Available for both FFELP and Direct Loan borrowers.
Graduated Repayment: This plan is different from the first two, in that it starts off with lower payments, which gradually increase every two years. Depending on the total amount you borrow in student loans, the loan term can be between 12 and 30 years. The monthly payment can be no less than 50% and no more than 150% of the monthly payment that you would have under the standard repayment plan. When you start out repaying the student loan, the monthly payment must be at least the interest that is accruing and also at least $25 (half the amount of the standard repayment). And of course, this amount will increase after the first two years. Available for both FFELP and Direct Loan borrowers.
Income-Contingent Repayment: Payments under this plan are based on the income of the borrower and the total amount that they owe. Monthly payments on the student consolidation loan will be adjusted each year in accordance with changes in the borrower’s income. The monthly payment must be greater than $5. The loan term can be up to 25 years, and at the end of the 25 years, any remaining balance on the loan will be discharged. Note that the write-off of the remaining balance after those 25 years is taxable based on current laws. This repayment program is only available for Direct Loan Borrowers.
Income-Sensitive Repayment: If you consolidated your federal student loans through FFELP, this is your alternative to income-contingent repayment. With this repayment plan your monthly payments will be a percentage of your gross monthly income, and the loan term will be 10 years. As I said, this is only available to FFELP borrowers.
Income-Based Repayment: This plan was introduced in 2007 as a better alternative to income-sensitive and income-contingent repayment, and will start on July 1, 2009. This repayment plan is available in both the Direct Loan and FFELP programs. It is similar to income-contingent repayment, but caps your monthly payments at a lower percentage of a smaller part of your income.
You are probably wondering what the difference is between the FFELP and Direct Student Loan Consolidation Programs, and what determines which you will use. I will describe that in my next post.
